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23 Sep. 2010 | Comments (0)

Now that the new SEC proxy access rules have appeared in the Federal Register and are set to go into effect in November for the next proxy season, many corporate secretaries and directors are probably looking for some sage advice.dodd-frank act For those who need a primer on the new rules and amendments, click here to see my Sept. 15 Worth Reading post. As for what actions you may want to take regarding proxy access for shareholder director nominations, I listened to an informative Webinar given by the corporate governance team at Skadden, Arps, Slate, Meagher & Flom LLP on Sept. 15. By the way, The Conference Board Governance Center will host its own three-part Webcast called “Shared Responsibility: New Governance Requirements and Corporate Executive Roles” on Nov. 2, Nov. 9 and Nov. 16 at 1 p.m. EST. The focus of the Webcasts will be on governance responsibilities of boards and how their expanded roles and new requirements will affect functional and operational executives who report to the board or its committees. Each part will last one hour and will be hosted by Alan Rudnick, senior advisor and program chair for The Conference Board Directors’ Institute. To find out more information or to register for the Webcasts, click here. During the Webinar, Skadden partners Marc S. Gerber, Richard J. Grossman, and Daniel E. Stoller came up with a list of action items that all public companies should consider.
  • Engage with major shareholders – They suggest using a proxy adviser to determine just who those shareholders are, especially with the practice of shareholder lending.
  • Determine gaps in board size and composition – They say to look for gaps in skill sets and factor in proxy access (shareholder nominees under Rule 14a-11) when considering the optimal size.
  • Review bylaws and governance policies – Check for definition of majority voting, if necessary, how many directors it takes to call a special board meeting, confidentiality and the process for determining an authorized spokesperson. Also, look at advance notice bylaws and see if they need to be revised and whether or not director qualification standards need to be adopted.
  • Be prepared and have internal and external teams in place – Such teams include legal advisers, financial advisers, proxy solicitors and a public relations firm.
One issue Gerber expects to hear a lot about is how companies attempt to use the very narrow exclusion provision in the new proxy access rules. There are only three ways a company can attempt to ask the SEC for permission to exclude a shareholder nominee from the proxy:
  • Rule 14a-11 is not applicable to the company
  • Eligibility and procedural requirements of Rule 14a-11 were not satisfied
  • The number of shareholder proxy access nominees exceeds the maximum permitted (25 percent of the sitting board)
“Eligibility and procedural requirements of Rule 14a-11 were not satisfied,” Gerber said. “That’s where most of the exclusions are going to come from.” Gerber also expects that corporate governance activists will seek to lower the thresholds for determining which shareholders are eligible for Rule 14a-11. The thresholds he referred to are the requirements for shareholder groups to own at least 3 percent of company stock for at least three years. “Some governance activists will push for lowering these thresholds for greater proxy access, especially if there are not many users of [Rule] 14a-11 in the first year,” he said. One of the most important bits of information the Skadden Arps partners presented during the Webinar was the timeline for excluding an access nominee. It’s a gauntlet of five regulatory deadlines that must be met between the original deadline for nominations and the date of mailing the definitive proxy statement. It goes something like this [look at Slide 21 in the Skadden Arps presentation here]:
  1. Within 14 days of the nominating deadline, the company must notify the nominating shareholder of a decision to exclude nominees or their supporting statement and state the reason.
  2. Within 14 days of the company’s notice, a nominating shareholder must respond and, if applicable, correct any deficiency. At this point, the nominating shareholder cannot change the group or nominees.
  3. No later than 80 days before filing the definitive proxy statement, the company must notify the SEC of its intent to exclude access nominees, with a copy sent to the nominating shareholder. The company may still seek a no-action letter.
  4. Within 14 days of receipt of the company’s notice to the SEC, the shareholder may submit a response to the SEC, with a copy sent to the company.
  5. Upon receiving a no-action response from the SEC, the company must notify the shareholder whether or not that nominee will included or excluded from company proxy materials. This should be at least 30 days before filing the definitive proxy statement.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

    Full Bio | More from Gary Larkin


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